The Big Mac Index Shows That the Price of the Big

question 58

Multiple Choice

The Big Mac Index shows that the price of the Big Mac in China converted from the local currency,yuan,to be $2.18,whereas its price in the United States is $3.73.This shows that:

• A) the Big Mac is more popular in China than in the United States.
• B) the Big Mac is less expensive in the United States than in China.
• C) the Chinese yuan is overvalued when compared to US $.
• D) the Chinese yuan is undervalued against the US $.
• E) beef is less expensive in China than in the United States.

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Definitions:

Income Effect

The change in consumption resulting from a change in real income.

Theory of Consumer Choice

An economic framework describing how consumers make decisions to allocate their resources optimally among various goods and services.

Indifference Curve

A graph representing combinations of goods among which a consumer is indifferent, showing trade-offs between two goods.

Budget Line

A graphical representation of all possible combinations of two goods that can be purchased with a given budget and prices.